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The Nikkei 225 came under pressure Friday, closing at 39,819 after briefly testing resistance near 40,133.65 earlier in the session. What began as a mild attempt to extend the gains from Thursday quickly unravelled into cautious selling, driven by a mix of macro uncertainty, election anxiety, and disappointing trade data.
Nikkei Slips as Elections Shake the Calm in Tokyo
The Japanese government bonds had the yields dropping across maturities, ahead of the closely-watched upper house election this coming Sunday. Concurrently, the Topix mirrored the move, dipping 0.2% to 2,834, as market participants chose to de-risk ahead.
Trade Tensions Weigh on Tech Stocks
One of the bigger drags came from Japan’s high-flying electronics and semiconductor names, which reversed sharply amid fears that strained trade ties with the US could begin to bite.
Disco Corp plunged 8.8%, Advantest fell 4.4%, and Sony Group slid 2.2%, with Keyence Corp dropping 0.6%. The June trade data didn’t help—shipments to the US dropped sharply, raising red flags just weeks before a key trade deadline in August.
Yet despite the drop, there is a degree of resilience underneath. For the week, the Nikkei still managed to gain 0.4%, bouncing back from last week’s losses. That modest lift has largely been credited to Japan’s latest inflation print, which came in lower than expected.
With inflationary pressure softening, the Bank of Japan is now seen more likely to hold rates steady, giving equities some breathing room, at least in the short term.
Technical Analysis: Nikkei 225
Nikkei 225 saw a sharp rejection from its peak of 40,133.65 earlier in the session, triggering a steep drop that found support around 39,725. The price has since stabilised, but it’s trading just under the 30-period moving average, suggesting the pullback is yet to be fully neutralised.
Picture: Nikkei trims gains after hitting 40,133. MACD hints at recovery, but bulls need to reclaim 39,800+, as seen on the VT Markets app
Short-term moving averages (5 and 10) remain compressed and below the 30-MA, signalling caution. However, MACD shows early signs of bullish crossover with bars flipping green and lines curling upward. These are hints of a recovery attempt. That said, a break above 39,800 is needed to regain upward momentum. Failing that, price may consolidate or retest the 39,700 area.
Traders may want to consider watching for a move above the 30-MA for confirmation of bullish continuation.
Outlook for the Japanese Stock Market
Looking ahead, the Nikkei faces a storm of potential catalysts. The outcome of the weekend election, clarity (or lack thereof) on the US-Japan trade track, and any signals from the BoJ’s next move could all shift the dial rapidly. Until then, traders may prefer to stay on the sidelines, hoping the market does not punish hesitation too harshly.
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